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Bank Capital Buffer and Economic Growth: New Insights from the US Banking Sector

Author

Listed:
  • Faisal Abbas

    (UCP Business School, University of Central Punjab Lahore, Lahore 54000, Pakistan)

  • Imran Yousaf

    (Air University School of Management, Air University, Islamabad 44000, Pakistan)

  • Shoaib Ali

    (Air University School of Management, Air University, Islamabad 44000, Pakistan)

  • Wing-Keung Wong

    (Department of Finance, Fintech & Blockchain Research Center, and Big Data Research Center, Asia University, Taichung 41354, Taiwan
    Department of Medical Research, China Medical University Hospital, Taichung 40402, Taiwan
    Department of Economics and Finance, The Hang Seng University of Hong Kong, Hong Kong 999077, China)

Abstract

This research intends to explore the relationship between capital buffer, nominator effect, denominator effect, and economic growth for large insured commercial banks of the USA. The study applied a two-step system Generalized Method of Moment (GMM) framework by taking the unique and comprehensive dataset over the period extending from 2002 to 2018. The research found a countercyclical relationship between a capital buffer and economic growth. In the case of well-capitalized banks, this relationship is more critical than adequately capitalized banks. In the case of low-liquid banks, counter-cyclicality is more significant than high-liquid banks. The results also suggest the pro-cyclical relationship between nominator, denominator, and economic growth. The results remain consistent and robust with the use of the tier-one capital buffer ratio. The findings have implications for regulators to incorporate the counter-cyclicality between the capital buffer and economic growth, while formulating the policies for capital requirements in the future.

Suggested Citation

  • Faisal Abbas & Imran Yousaf & Shoaib Ali & Wing-Keung Wong, 2021. "Bank Capital Buffer and Economic Growth: New Insights from the US Banking Sector," JRFM, MDPI, vol. 14(4), pages 1-13, March.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:4:p:142-:d:523474
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    References listed on IDEAS

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    Cited by:

    1. Faisal Abbas & Zahid Irshad Younas, 2021. "How Do Bank Capital and Capital Buffer Affect Risk: Empirical Evidence from Large US Commercial Banks," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(2), pages 109-131.
    2. Retselisitsoe I. Thamae & Nicholas M. Odhiambo, 2023. "Bank regulation, supervision and lending: empirical evidence from selected Sub-Saharan African countries," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 16(3), pages 485-504, September.
    3. Faisal Abbas & Shoaib Ali, 2022. "Is Economic Freedom a Moderator of the Relationship Between Bank Capital and Profitability?," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 69(2), pages 273-292, June.

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